Iraq economy falls below pre-war levels

Guy Dinmore, Financial Times

Washington, February 16 2006 18:33

The Bush administration on Thursday conceded that key sectors of the Iraqi economy had fallen below pre-war levels because of the insurgency, but insisted it was making enough progress on the political and security fronts to press ahead with reductions in US forces.

Condoleezza Rice, the secretary of state, told the Senate budget committee that production of crude oil and electricity was down from three years ago. Attacks had also hit oil exports.

According to latest statistics – which Ms Rice did not mention – crude oil production this month is running at 1.7m barrels a day, down from a post-invasion peak of 2.5m in September 2004 that was close to prewar levels.

Ms Rice initially asserted that "many more Iraqis" were now getting potable water and sewerage services. However, under intense questioning from Kent Conrad, a North Dakota Democrat, she conceded that although "capacity" had increased, fewer Iraqis were actually receiving those services.

Senator Conrad, citing the special inspector general, said almost all economic indices showed Iraq was better off before the US had invaded. Republicans, too, are sceptical of administration claims of progress. Senator Chuck Hagel told Ms Rice on Wednesday he believed the situation was getting worse.

Donald Rumsfeld, the defence secretary, told a separate House budget hearing on Thursday that political and economic progress was being made. "For the most part, the country is functioning," he said. It was not "a pretty picture", but not everything was horrible. "We’re not there to do nation-building. It’s going to be an Iraqi solution ultimately," he said.

The insurgents were being "marginalised", Mr Rumsfeld said, noting that the US had turned over to Iraqis or closed some 30 military bases.

However, a veteran US official, speaking to the FT on condition of anonymity, questioned these assertions. He spoke of growing concerns in the administration that the US and the UK were becoming embroiled in a civil war, and that the Shia-dominated government they were supporting, particularly the interior ministry, was fuelling that war through its use of death squads and secret prisons.

"We are enhancing their ability to be more lethal, but we are not instilling a sense of national identity," the official said. He cited Basra, under British control, as the worst example of a region under the control of sectarian militia.

The administration on Thursday was due to present to Congress its supplemental 2006 budget for Iraq and Afghanistan of $65bn (€54.5bn, £37.4bn).

On building up Iraq’s security forces, Ms Rice said the US had corrected its "mistake" in having focused on numbers instead of quality. Now, she said, there were 227,000 "quality" Iraqi forces.

"As Iraqi security forces stand up in their security task, there is no doubt in my mind that American security forces will be less and less needed and less and less relevant to the task," she said.

The US has about 138,000 troops in Iraq. It refuses to fix a timetable for withdrawal, but there is a general understanding in Congress and among Washington think-tanks that the Pentagon aims to have about 100,000 troops by the end of this year.

Questioned on a recent Pentagon-commissioned report that concluded the US could not sustain the number of troops required to defeat the insurgency, Mr Rumsfeld replied: "The Iraqi insurgency will be defeated by Iraqis . . . So the question posed is an inaccurate question."

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